Free CFP Exam General Principles of Financial Planning Practice Questions
General financial planning principles on the CFP exam cover the seven-step financial planning process, personal financial statement analysis, time value of money calculations, and economic concepts relevant to comprehensive planning (CFP Board).
Sample Questions
Question 1
Easy
Which of the following scenarios BEST illustrates the iterative nature of the financial planning process?
Solution
B is correct.
The iterative nature of the financial planning process means that monitoring can trigger a return to earlier steps — gathering new data, re-analyzing the situation, and developing revised recommendations. A health change discovered during monitoring loops the planner back through the process for the affected planning areas, demonstrating the cyclical, ongoing character of financial planning.
The iterative nature of the financial planning process means that monitoring can trigger a return to earlier steps — gathering new data, re-analyzing the situation, and developing revised recommendations. A health change discovered during monitoring loops the planner back through the process for the affected planning areas, demonstrating the cyclical, ongoing character of financial planning.
Question 2
Medium
A prepaid tuition 529 plan differs from a 529 savings plan primarily in that:
Solution
A is correct.
A prepaid tuition plan allows families to purchase future tuition credits at participating public institutions at today's prices, hedging against tuition inflation. If the student attends a non-participating institution, value may be limited. By contrast, 529 savings plans invest in portfolios with returns depending on market performance but can be used at any eligible institution for qualified expenses.
A prepaid tuition plan allows families to purchase future tuition credits at participating public institutions at today's prices, hedging against tuition inflation. If the student attends a non-participating institution, value may be limited. By contrast, 529 savings plans invest in portfolios with returns depending on market performance but can be used at any eligible institution for qualified expenses.
Question 3
Hard
A Coverdell Education Savings Account (ESA) differs from a Section 529 plan primarily in that:
Solution
D is correct.
Coverdell ESAs provide tax-free growth and tax-free qualified distributions for education expenses, including private K-12 and special needs education, which 529 plans also allow (up to $10,000/year for K-12). Key limitations: annual contributions are capped at $2,000 per beneficiary from all contributors combined, and the ability to contribute phases out for single filers with MAGI $95,000–$110,000 and joint filers $190,000–$220,000. By contrast, 529 plans have no income-based contribution restrictions and no federally mandated annual limits.
Coverdell ESAs provide tax-free growth and tax-free qualified distributions for education expenses, including private K-12 and special needs education, which 529 plans also allow (up to $10,000/year for K-12). Key limitations: annual contributions are capped at $2,000 per beneficiary from all contributors combined, and the ability to contribute phases out for single filers with MAGI $95,000–$110,000 and joint filers $190,000–$220,000. By contrast, 529 plans have no income-based contribution restrictions and no federally mandated annual limits.